Brussels, 29/06/2015 (Agence Europe) - On Monday 29 June, the Presidents of the European Commission, Jean-Claude Juncker, and of the European Parliament, Martin Schulz, urged the people of Greece to vote 'yes' in the referendum to be held on Sunday 5 July. However the question is worded, this referendum will, according to these Presidents and the French President François Hollande, be tantamount to asking the Greeks whether they want to stay members of the Economic and Monetary Union.
“The Greek citizens called to the ballot boxes must be able to see clearly what is at stake”, Juncker told a press conference. Visibly disappointed at the turn taken by events since the negotiations on the Greek bailout plan broke down (see EUROPE 11345), he said that the “message sent out by a 'no' will be disastrous for what happens next” and would mean “Greece saying no to Europe”.
The Greek government plans to ask the Greeks if they agree to the proposals on the reforms to be applied and the analysis of the viability of the debt tabled by the creditors of Athens. The government, which wants the package on the table to be rejected, put the 'no' box above the 'yes' box on the ballot paper, according to several media sources. The President of the European Council, Donald Tusk, warned on his Twitter account: “a 'no' vote will not result in a stronger negotiating position” for the Greek authorities.
“It is certainly a demanding and comprehensive package, but it is a fair one”, said Juncker, who has made it a personal mission to keep Greece in the eurozone. Not only will the 19 countries of the zone remain a group of 19, but there will be “more of them over the years and decades to come”, he said.
According to Juncker and Schulz, the package of reforms proposed by the 'institutions' contains no cuts to pensions or salaries, instead reducing defence expenditure. However, on the highly controversial issue of pensions, the special premium for the lowest pensions is a “major distortion” in the system, a European source explained, adding that the Greek government had itself acknowledged that the pension system was unsustainable. Rather than cuts in nominal pensions, therefore, the discussions focused on the question of early retirement or the alignment of contributions to the various pension funds.
“All governments have taken very difficult decisions; some of them paid a very high political price for their solidarity and their financial support to help the most vulnerable countries”, stressed the Commission President.
Debt discussed. Juncker stressed the enormous efforts to maintain dialogue with the Greek authorities and bring them back to the negotiating table, in the hope that they will change their mind on the content of the reforms package being put together. Working with the President of the Eurogroup, Jeroen Dijsselbloem, he assured Greece that the question of the debt would indeed be discussed. It has been clearly stated on a number of occasions that the debt would be on the agenda in the autumn, a number of European sources explained.
The Eurogroup declaration of November 2012 on the Greek debt lays down the prior conditions for a further gesture on its part: it stipulates targets for the debt trajectory (175% of GDP in 2016, 124% in 2020 and substantially below 110% in 2022). The Commission has established a number of scenarios regarding the debt trajectory, which predict that if all reforms are implemented, the debt/GDP ratio would be above target in 2022 due to lower growth. The eurozone is therefore bound by the objectives it set in place itself.
The fact remains that despite the overtures the 'institutions' feel they have made, the Greek Prime Minister, Alexis Tsipras, had extremely harsh words to say about the creditors of Athens, disregarding the latest attempts to bring the positions closer together. In the absence of an agreement, the second Greek bailout plan expires this Tuesday 30 June, the day on which Greece is to pay €1.6 billion back to the IMF. For the first time, a European country on life support from its international creditors could be in a payment default situation.
The door remains open. The door is still open to resume talks for a global agreement, said Juncker. This was also the message sent out by Berlin. The German Chancellor, Angela Merkel, is “obviously disposed to resume discussions” with Tsipras, a German government spokesperson said. Following a limited Council of Ministers, Hollande also said that he was available. Schulz said that he was prepared to travel to Athens to keep the communication channels open. In Spain, the finance minister, Luis De Guindos, even said that it might be possible to put the final hours before the current bailout plan expires to good use.
The conference of the presidents of the political groups of the European Parliament even called for an “emergency eurozone summit” to “suspend any decision stemming from a default in repayment” to the IMF and “clarify the text that will be put to the referendum of 5 July”, the Greens/EFA group stated in the press release. The group adds that the European leaders should also undertake “unambiguously to start immediate negotiations on the restructuring of the Greek debt and an investment plan, without which it is unrealistic to imagine that there can be economic recovery”.
The expiry of the bailout plan spells the end of the availability of the remaining funds (€1.8 billion from the EFSF, €6.3 billion in profit related to the Greek bonds held by the ECP in the framework of its 'SMP' operation, a buffer of €10.9 billion for the banks).
However, if the result of the referendum is favourable, the theory of a third bailout plan would become a possibility. Following an official application by the Greek authorities, negotiations would start on the content of the programme (funding, conditions). The budgetary objectives laid down in the current negotiations could, for instance, be carried forward. “There is a critical time factor for the national procedures” to approve a potential third bailout plan, of around one week, this eurozone source warned. However, things could move faster if there is plenty of goodwill. As Greece is supposed to pay €3.5 billion back to the ECB on 20 July, the third plan would have to be approved by then because, according to the analysts, that is the date on which Greece would really be looking down the barrel of a Grexit. Being in default to the ECB would oblige the institution to cut off the emergency liquidity (ELA) to the Greek banks.
Furthermore, the Commission justified the decision to place restrictions on the movement of capital in order to guarantee the stability of the Greek banking system. “While the imposed restrictive measures appear necessary and proportionate at this time, the free movement of capital will however need to be reinstated as soon as possible”, said the Commissioner for Financial Services, Jonathan Hill. Since the beginning of the week, the Greeks have only been able to withdraw €60 a day from banks and money transfers abroad are prohibited. These restrictions do not affect the holders of foreign credit cards.
Fears of contagion are very real. The financial markets have expressed concern at the evolution of the situation in the eurozone. Interest rates on the long-term bonds of the countries of southern Europe shot upwards on Monday. The requested yield on the sovereign bonds of the northern eurozone countries have, however, followed the opposite trajectory. (Elodie Lamer with Mathieu Bion)